-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WJvW68bgM90kMqr5bp/8qF7Mn2bxtNLhfNdWvsN/HsPsFKTV1R93U2M/fV/t3C/z DYcZDg1JTgag3qnTLCzJTQ== 0000929624-98-001339.txt : 19980812 0000929624-98-001339.hdr.sgml : 19980812 ACCESSION NUMBER: 0000929624-98-001339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALKER INTERACTIVE SYSTEMS INC CENTRAL INDEX KEY: 0000883983 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 952862954 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19872 FILM NUMBER: 98680157 BUSINESS ADDRESS: STREET 1: MARATHON PLZ THREE NORTH STREET 2: 303 SECOND ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 BUSINESS PHONE: 4144958811 MAIL ADDRESS: STREET 1: MARATHON PLAZA THREE NORTH STREET 2: 303 SECOND STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94107 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19872 WALKER INTERACTIVE SYSTEMS, INC. -------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2862954 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 303 SECOND STREET, SAN FRANCISCO, CA 94107 ------------------------------------------- (Address of principal executive offices including zip code) (415) 495-8811 -------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- There were 14,013,285 Shares of $.001 Par Value Common Stock outstanding as of August 3, 1998. WALKER INTERACTIVE SYSTEMS, INC. FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION Page ---- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997....................................... 3 Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997...... 4 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997................ 5 Notes to Consolidated Financial Statements.................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 7 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 15 ITEM 5. OTHER INFORMATION............................................. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 15 SIGNATURES............................................................. 17
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WALKER INTERACTIVE SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
JUNE DECEMBER ASSETS 30, 1998 31, 1997 --------- -------- (unaudited) Current assets: Cash and cash equivalents $11,304 $ 7,646 Short-term investments 5,437 13,693 Accounts receivable, net 26,797 23,107 Prepaid expenses 2,364 2,001 --------- -------- Total current assets 45,902 46,447 Long-term investments 4,494 6,351 Property and equipment, net 4,327 4,599 Capitalized software, net 17,427 15,777 Deferred tax assets, net 12,288 13,632 Other assets 4,082 4,528 --------- -------- TOTAL ASSETS $88,520 $91,334 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $15,607 $19,292 Deferred revenue 13,855 15,557 --------- -------- Total current liabilities 29,462 34,849 Deferred revenue 1,714 1,190 Accrued rent 918 887 Other long-term obligations 2,532 2,719 --------- -------- Total liabilities 34,626 39,645 --------- -------- Commitments and contingencies - - Stockholders' equity: Common stock, $.001 par value: 50,000,000 shares authorized; issued 14,072,909 shares - June 30, 1998; 13,973,457 shares - December 31, 1997 14 14 Additional paid-in capital 74,208 73,622 Currency translation adjustments 219 238 Unrealized gain on investments 11 2 Accumulated deficit (19,798) (22,187) Treasury stock at cost (50,330 shares - June 30, 1998) (760) - --------- -------- Total stockholders' equity 53,894 51,689 --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,520 $91,334 ========= ========
See notes to consolidated financial statements 3 WALKER INTERACTIVE SYSTEMS, INC CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------------- ---------------------- 1998 1997 1998 1997 -------- -------- -------- -------- REVENUES: License $ 5,560 $ 3,451 $11,967 $ 7,191 Maintenance 7,602 6,795 15,327 13,716 Consulting 12,278 6,015 21,808 12,427 -------- -------- ------- -------- Total revenues 25,440 16,261 49,102 33,334 OPERATING EXPENSES: Costs of revenues: Costs of licenses, maintenance and consulting 10,522 6,500 20,258 13,176 Amortization of capitalized software 1,037 1,253 2,070 2,341 Sales and marketing 5,698 3,931 11,337 7,787 Product development 3,191 2,451 6,392 4,984 General and administrative 3,173 2,062 5,896 4,448 -------- ------- -------- ------- Total operating expenses 23,621 16,197 45,953 32,736 Operating income 1,819 64 3,149 598 Interest income, net 276 490 584 994 -------- ------- -------- ------- Income before income taxes 2,095 554 3,733 1,592 Income tax expense 755 195 1,344 557 -------- ------- -------- ------- NET INCOME $ 1,340 $ 359 $ 2,389 $ 1,035 ======== ======= ======== ======= BASIC NET INCOME PER SHARE $ 0.10 $ 0.03 $ 0.17 $ 0.08 ======== ======= ======== ======= Shares used in computing basic net income per share 13,978 13,207 13,976 13,193 ======== ======= ======== ======= DILUTED NET INCOME PER SHARE $ 0.09 $ 0.03 $ 0.16 $ 0.07 ======== ======= ======== ======= Shares used in computing diluted net income per share 15,196 14,220 15,140 14,182 ======== ======= ======== =======
See notes to consolidated financial statements 4 WALKER INTERACTIVE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
SIX MONTHS ENDED JUNE 30, ------------------------ 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,389 $ 1,035 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,267 3,730 Tax benefit of nonqualified stock options 203 199 Changes in operating assets and liabilities: Accounts receivable, net (3,690) (2,440) Prepaid expenses (363) (758) Accounts payable and accrued liabilities (2,376) (1,221) Deferred tax assets 1,344 587 Deferred revenue (1,178) (605) Other 467 81 --------- --------- Net cash provided by operating activities 63 608 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from employee stock purchase plan issuances and stock options exercised 1,201 1,067 Treasury stock acquired (1,578) (328) Repayment of borrowings (1,422) - Other (43) (12) --------- --------- Net cash provided (used) by financing activities (1,842) 727 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short- and long-term investments (3,256) (17,729) Maturities of short-term investments 8,150 8,750 Sales of short-term investments 5,221 9,006 Purchases of property (966) (1,212) Additions to capitalized software (3,719) (3,863) Other 7 106 --------- --------- Net cash provided (used) by investing activities 5,437 (4,942) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,658 (3,607) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,646 13,475 --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $11,304 $ 9,868 ========= =========
See notes to consolidated financial statements 5 WALKER INTERACTIVE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and include all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for those periods. Results for the interim periods are not necessarily indicative of the results for the entire year. These consolidated financial statements and any notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1997 included in the Walker Interactive Systems, Inc. Annual Report on Form 10-K. RECLASSIFICATIONS Certain previously reported amounts have been reclassified to conform with the current presentation format. 2. ACQUISITION OF REVERE, INC -------------------------- On December 2, 1997, the Company acquired all the outstanding share capital of Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's common stock (634,022 shares) and $0.6 million for various transaction related costs and fees. An additional earnout of up to $2.0 million is payable based upon the achievement of certain 1998 performance targets. Associated with the transaction's closing total purchase price of $8.3 million, the Company allocated $4.1 million to goodwill, $4.6 million was allocated to in-process research and development and the remaining amounts allocated primarily to working capital. The amount of the purchase price allocated to in-process research and development was charged to the Company's operations, because technological feasibility had not been established and no alternative future uses existed at the acquisition date. The acquisition was accounted for as a purchase transaction. The goodwill will be ratably charged to operations over six years. The results of operations of Revere are included in the 1998 consolidated statements of operations. 3. EARNINGS PER SHARE ------------------ The Company calculates basic earnings per share ("EPS") and diluted EPS in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for that period. Diluted EPS takes into account the effect of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. The following is a summary of the calculation of the number of shares used in calculating basic and diluted EPS (in thousands):
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1998 1997 1998 1997 ------ ------ ------ ------ Shares used to compute basic EPS 13,978 13,207 13,976 13,193 Add: ------ ------ ------ ------ Effect of dilutive securities 1,218 1,013 1,164 989 ------ ------ ------ ------ Shares used to compute diluted EPS 15,196 14,220 15,140 14,182 ====== ====== ====== ======
6 WALKER INTERACTIVE SYSTEMS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The report on this Form 10-Q contains forward-looking statements, including statements related to industry trends and demand for mainframe products, cash commitments, working capital requirements and possible expansion in international markets. Discussions containing such forward-looking statements may be found in the material set forth in this section, generally and specifically herein under the captions "Liquidity and Capital Resources", "Year 2000 Compliance" and "Additional Risk Factors." Actual events or results may differ materially from those discussed herein. The Company disclaims any obligation to update these forward-looking statements as a result of subsequent events. The risk factors on pages 10 through 14, among others, should be considered in evaluating the Company's prospects and future financial performance. Walker Interactive Systems, Inc. (hereinafter "Walker" or the "Company") was incorporated in California in 1973 and reincorporated in Delaware in March 1992. Walker designs, develops, markets and supports, on a worldwide basis, a family of enterprise client/server financial application software products that enable large and medium-sized organizations, higher education institutions, and federal, state, and government agencies to accelerate time-to-benefit, lower cost of ownership and reduce information systems risks stemming from changes in information technology and/or business processes or structure. Walker designs its software products specifically for the client/server and network computing models and believes that its architecture is among the most scalable and adaptable available for enterprise-level financial applications software. The Company's strategy is to offer comprehensive enterprise financial solutions to a variety of industries utilizing its best-of-breed software products. Walker's internet/intranet-enabled applications support and enhance enterprise-wide financial processes, including planning, budgeting, forecasting, consolidation and performance management. The Company's software products utilize the Microsoft Windows operating systems on the desktop, and industry- leading relational database management systems including IBM's DB2, Oracle and Microsoft SQL/Server. The Tamaris product line represents the Company's core suite of business and financial solutions utilizing the power of the enterprise server, while the Aptos suite of financial applications provides a client/server architecture that runs on UNIX and Windows NT servers. The Company also develops and markets Horizon best-of-breed analytic applications which provide financial reporting, budgeting and financial consolidation solutions for large and mid-sized organizations. The Horizon analytic applications can be used with the Tamaris and Aptos products or in conjunction with leading Enterprise Resource Planning ("ERP") applications. In addition, Walker's IMMPOWER product line provides best-of-breed Enterprise Asset Management solutions for capital intensive industries. The Company's software products include productivity tools that allow the Company's applications to be extensively customized to fit the customer's particular requirements. The Company complements its software products by providing specialized consulting services to assist customers with customization, implementation, migration, Year 2000 consulting and best practice solutions. The Company derives its revenues primarily from software licenses, software maintenance and professional consulting services. The Company's Tamaris, Horizon and IMMPOWER product lines are licensed to large and mid-size business and governmental organizations worldwide. The Company's Aptos products are marketed primarily in the United Kingdom and are licensed to mid-sized organizations. The Company's products and services are marketed primarily through its sales forces located in the United States, United Kingdom and Asia Pacific. The Company licenses software products directly to customers and occasionally to distributors for resale. ACQUISITION OF REVERE, INC. - --------------------------- On December 2, 1997, the Company acquired all the outstanding share capital of Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's common stock (634,022 shares) and $0.6 million for various transaction related costs and fees. An additional earnout of up to $2.0 million is payable based upon the achievement of certain 1998 performance targets. Associated with the transaction's closing total purchase price of 7 $8.3 million, the Company allocated $4.1 million to goodwill, $4.6 million was allocated to in-process research and development and the remaining amounts allocated primarily to working capital. The amount of the purchase price allocated to in-process research and development was charged to the Company's operations, because technological feasibility had not been established and no alternative future uses existed at the acquisition date. The acquisition was accounted for as a purchase transaction. The goodwill will be ratably charged to operations over six years. The results of operations of Revere are included in the consolidated statement of operations for the three and six month periods ended June 30, 1998. Therefore, period to period comparisons may not meaningfully depict trends or changes in operating results. RESULTS OF OPERATIONS - --------------------- The following results of operations for three and six months ended June 30, 1998 include the operations of Revere, unless otherwise specified. REVENUES. The Company recorded total revenues of $25.4 million and $49.1 million during the three and six months ended June 30, 1998, respectively. The increase in total revenues of $9.2 million and $15.8 million over the three and six months ended June 30, 1997, respectively, is primarily due to increases in worldwide license and consulting revenue. License revenues increased $2.1 million or 61 percent and $4.8 million or 66 percent to $5.6 million and $12.0 million for the three and six months ended June 30, 1998, respectively. The increase in license revenues is partly attributable to license revenues generated from Revere operations during the first half of 1998. The remaining increase in license revenues is primarily attributable to increases in license revenues generated by the Company's Horizon and Aptos product lines. The Company believes that the increase in Horizon and Aptos license revenues during the first half of 1998 is attributable to increased sales and marketing efforts, enhanced product offerings and increased demand for the Company's financial application solutions from large and mid- sized organizations. Maintenance revenues increased 12 percent to $7.6 million for the 3 months ended June 30, 1998 and increased 12 percent to $15.3 million for the six months ended June 30, 1998. The increase is primarily attributable to maintenance revenue from Revere operations. The remaining increase in maintenance revenues is primarily attributable to growth in license sales during 1998. Consulting revenues were $12.3 million for the second quarter of 1998 and $21.8 million for the first six months of 1998. During 1997 consulting revenues were $6.0 million and $12.4 million for the three and six months ended June 30, respectively. Consulting revenues are generated from new and existing customers for services related to training, implementation, customization, migration, enhancement, Year 2000 compliance engagements, best practice consulting engagements and other special projects. The Company generates a majority of its consulting revenues from implementation related projects. The $6.3 million and $9.4 million increases in consulting revenues during the second quarter and first half of 1998, respectively, are partly attributable to consulting revenues generated from Revere operations. The remaining increases in 1998 consulting revenues are primarily due to revenues generated from Year 2000 consulting engagements, which were minimal during the first half of 1997. Additional increases in consulting revenues were generated from implementation related projects associated with the Company's Tamaris, Aptos and Horizon product lines. COSTS OF LICENSES, MAINTENANCE AND CONSULTING. Costs of licenses, maintenance and consulting represented 41 percent of total revenues for the three and six months ended June 30, 1998 compared to 40 percent of total revenues for the same periods in 1997. The increase is primarily attributable to increased license revenues and a greater proportion of those license revenues generated from the Company's products which utilize technology licensed from third parties. Excluding the operations of Revere, the costs of licenses, maintenance and consulting represented 41 percent and 42 percent of total revenues for the three and six months ended June 30, 1998, respectively, compared to 40 percent of total revenues for the same periods in 1997. The increase in 1998 is partially attributable to lower profit margins in North America associated with a fixed fee consulting engagement offset by relatively higher profit margins recognized on Year 2000 compliance engagements. Further contributing to the increase are higher fees associated with the use of third party technology and increases in consulting headcount due to the increased volume of consulting engagements associated with the increases in license revenue. 8 AMORTIZATION OF CAPITALIZED SOFTWARE. Amortization of capitalized software represented 4 percent of total revenues for the three and six months ended June 30, 1998 compared to 8 percent and 7 percent of total revenues for the same periods in 1997, respectively. The decrease in 1998 is attributable to the completion of amortization for several products at the beginning of the Q4 partially offset by amortization from recent product releases. SALES AND MARKETING. In absolute dollars, sales and marketing expenses increased 45 percent to $5.7 million for the three months ended June 30, 1998 and increased 46 percent to $11.3 million for the six months ended June 30, 1998. The increase in absolute dollars is primarily attributable to Revere operations, higher commissions and travel expenses associated with the increase in license revenues and increased costs associated with marketing promotions. As a percentage of total revenues, sales and marketing expenses were 22 percent and 24 percent for the three months ended June 30, 1998 and 1997, respectively. For the six months ended June 30, 1998 and 1997, sales and marketing expenses as a percentage of total revenues was 23 percent. The increase in sales and marketing expenses as a percentage of total revenues during the second quarter of 1998 is primarily attributable to increased costs associated with marketing promotions. Expenses associated with commissions and travel expenses were not a significant contributing factor to the increase in sales and marketing expenses as a percent of total revenue during the second quarter due to increases in total revenues during the same timeframe. PRODUCT DEVELOPMENT. Product development related expenses, excluding amortization of capitalized software, are detailed as follows (in thousands):
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1998 1997 1998 1997 ------ ------ ------ ------ Product development costs including additions to capitalized software (gross) $4,975 $4,475 $10,111 $8,847 Less: Additions to capitalized software (1,784) (2,024) (3,719) (3,863) ------ ------ ------ ------ Product development expenses $3,191 $2,451 $6,392 $4,984 ====== ====== ====== ======
The increase in 1998 gross product development expenses is primarily due to expenses generated by Revere operations. Further contributing to the increase in gross expenses are the Company's continued efforts to broaden its existing product offerings by further developing acquired technologies, incorporating third party technologies in new products and enhancing existing products. As a percentage of gross product development expenses, additions to capitalized software were 36 percent and 45 percent for the three months ended June 30, 1998 and 1997, respectively. For the six months ended June 30, 1998 and 1997, additions to capitalized software represented 37 percent and 44 percent of gross development expenses, respectively. The decrease in capitalized software in 1998 is partially attributable to the use of product development resources for post-release work after a major product release in the fourth quarter of 1997. Resources were additionally utilized on several other projects which were not capitalizable as technological feasibility had not been reached on those projects. Historical additions to capitalized software, in absolute dollars and as a percentage of gross product development costs, are not a reliable indicator of additions to capitalized software in absolute dollars and as a percentage of gross product development costs that will be recognized in the future. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $3.2 million and $2.1 million for the three months ended June 30, 1998 and 1997, respectively. For the six months ended June 30, 1998 and 1997, general and administrative expenses were $5.9 million and $4.4 million, respectively. The increase is primarily due to expenses from Revere operations. Further contributing to the increase in 1998 general and administrative expenses were increased facility costs associated with rental increases and additional headcount. INCOME TAX EXPENSE. Income tax expense is recorded each quarter based on the Company's estimated effective income tax rate for the year. The Company estimates that the 1998 effective income tax rate will be 36 percent. 9 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flows from financing activities used cash of $1.8 million in 1998 and provided cash of $0.7 million in 1997. The increase in cash used during 1998 is primarily a result of $1.4 million used to repay an outstanding line of credit which was assumed during the acquisition of Revere in December 1997. The Company further used $1.6 million during the first six months of 1998 for the repurchase of its common stock, offset by $1.2 million provided by employee stock purchase plan issuances and exercises of stock options. The Company has a line of credit in the amount of $3.0 million, secured by marketable securities. The line of credit expires on August 31, 1999. The Company has never borrowed against this line of credit. As of June 30, 1998, the Company's principal sources of liquidity included cash, cash equivalents and short- and long-term investments aggregating $21.2 million. The following sentence is a forward looking statement. The Company believes that its principal sources of liquidity, together with funds expected to be generated from operations, will satisfy the Company's currently anticipated working capital and capital expenditure requirements for at least the next twelve months. YEAR 2000 COMPLIANCE - -------------------- The Company has completed an assessment of its Year 2000 issues. The following statement is a forward-looking statement. The Company has determined that its Year 2000 issues would not have a material effect on the Company's business, results of operations or financial condition. ADDITIONAL RISK FACTORS - ----------------------- The Company operates in a rapidly changing environment that involves numerous risks and uncertainties which could have a material adverse effect on the Company. The following discussion details some, but not all, of these risks and uncertainties. FLUCTUATION IN OPERATING RESULTS. The Company's operating results fluctuate as a result of a variety of factors including: (i) the execution of new license agreements; (ii) the shipment of software products; (iii) customer acceptance criteria for services performed; (iv) completion of milestone or other significant development requirements pursuant to the Company's license agreements; (v) the financial terms of consulting agreements and the inclusion of fixed as opposed to variable pricing; (vi) third-party royalty payments for licensed software; (vii) the demand for the Company's products and services; (viii) changes in the Company's product mix; (ix) the development and launch of new products, and the life cycles of the Company's existing products; (x) research and development expenditures required to update and expand the Company's product portfolio and related third-party consulting costs; (xi) sales and marketing expenses generally related to the entry into new markets with new or existing products and maintenance of market share in existing markets; (xii) acquisitions and the integration and development of acquired entities or products; (xiii) competitive conditions in the industry and (xiv) general economic conditions. As a result, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. The Company's quarterly operating results are particularly dependent on the number of license agreement bookings executed in each quarter. The amount of quarterly bookings has varied substantially from quarter to quarter due to a variety of reasons including: (i) a high proportion of license agreements are negotiated during the latter part of each quarter which may not be completed before the quarter end; (ii) the sales cycles for some of the Company's products are relatively long due to the Company's focus on "enterprise solutions" as opposed to individual products, which adds complexity to the customer's selection, negotiation and approval process; (iii) the amount related to each booking may vary significantly due to the need for different solutions for different customers; (iv) procurement procedures may vary from customer to customer, which may affect the timing of the bookings; (v) the period for a customer to complete product evaluations and to complete any subsequent purchase approval may be delayed due to resource limitations; and (vi) economic, political and industrial conditions can adversely affect business opportunities without notice. In addition, bookings that are executed during a particular quarter may not be 10 recognized as revenue during such quarter because such bookings may not have met the Company's revenue recognition criteria. No assurance can be given that the Company will be able to effect new bookings in accordance with historical results or management's expectations, and the inability of the Company to do so could have a material adverse effect on the Company's operating results. While the Company typically sells its software under a standard license agreement, license agreements associated with large enterprise solutions often require the negotiation of terms and conditions that differ substantially from the Company's standard license agreement terms. The negotiation of these agreements may extend the sales cycle. In certain circumstances, the Company may not obtain terms and conditions that permit the recognition of revenue upon shipment of the licensed product or under the percentage of completion method of contract accounting rules. Accordingly, revenue may not be recognized despite the shipment of a product because specified milestones have not been met or because applicable services have not been completed. The Company in the past has and in the future expects to enter into fixed price consulting agreements, particularly in response to increased competition in the industry. The Company has recognized lower profit margins on certain fixed- price service agreements when compared to variable agreements. No assurance can be given that the Company will be able to conclude fixed-price agreements on terms that will allow the Company to retain its historical operating margins. The Company has historically generated a majority of its consulting revenue from pre- and post-implementation services. Recently, the Company has provided services which include, but are not limited to, Year 2000 conversion engagements, best practice solution engagements and other hardware and software solutions. The Company intends to continue its pursuit of consulting engagements for which the Company believes it is qualified. There can be no assurances that these engagements will result in profit margins equal to or greater than those engagements that are specific to a customer's product implementation. Furthermore, there can be no assurances that consulting revenue generated from non-implementation related projects will continue in the future. Employee and facility related expenditures comprise a significant portion of the Company's operating costs and expenses, and are therefore relatively fixed over the short term. In addition, the Company's expense levels are based, in significant part, on the Company's forecasted revenue. If revenue levels fall below expectations, net income is likely to be adversely affected. There can be no assurance that the Company will be able to maintain or to continue its current level of profitability on a quarterly or annual basis in the future. Any of the foregoing factors could cause the Company's future operating results to fall below the expectations of public securities market analysts, which could have an adverse effect on the trading price of the Company's common stock. See "Volatility of Stock Price." RELIANCE ON THIRD PARTY TECHNOLOGY. The Company generates revenue from internally developed software products, some of which utilize technology licensed from third parties. The Company expects to continue utilizing third party technology and may enter into agreements with additional business partners. If sales of software utilizing third party technology increase disproportionately, gross margins may be below historical levels due to third party royalty obligations. There can be no assurances that the third parties will renew existing agreements with the Company or will not require financial conditions which are unfavorable to the Company. Furthermore, there can be no assurances that existing third party agreements will not be terminated. INDUSTRY. Certain software companies, including the Company, have experienced significant economic downturns as a result of technological shifts and competitive pressures. These downturns are characterized by decreased product demand, price erosion, work slowdowns and layoffs. The Company's operations may, in the future, experience substantial fluctuations from period to period as a consequence of such industry patterns and general economic and political conditions which could affect the timing of orders from customers. There can be no assurance that such factors will not have a materially adverse effect on the Company's business, operating results or financial condition. INTERNATIONAL. The Company plans to increase its presence in international markets including, but not limited to, marketing the Tamaris and Aptos product lines in additional countries. Risks associated with such pursuits include, but are not limited to, the following: changing market demands, economic and political conditions in foreign markets, foreign exchange fluctuations, longer collections cycles, difficulty in managing a geographically dispersed organization, and changes in international tax laws. The downturn in the Asia Pacific business climate 11 will have an adverse effect on some market opportunities. Operating results are likely to be adversely affected if the Company's expansion into international markets is not successful. COMPETITION. The business and financial applications software market for large and complex organizations is intensely competitive. The Company's principal competitors with Tamaris solutions are Dun & Bradstreet Software Services, Inc. (mainframe applications now owned by Geac Computer Corporation Limited), SAP AG, Oracle and PeopleSoft, Inc. With Aptos solutions, the Company faces competition from The BAAN Company N.V., Oracle Corporation, Lawson Software, Inc., Platinum Software, Inc., Systems Union Group Ltd and Agresso AS. With the Horizon suite of products, the Company faces competition from Hyperion Software, Longview and Oracle Corporation. With the IMMPOWER suite of products, the Company faces competition from Datastream Systems, Inc., Indus International, Inc., Marcam Solutions, Inc., Mincom Pty Ltd., Product Software & Development, Inc. and SAP AG. The Company also competes to a lesser extent with other independent software application vendors. Many of the Company's current and potential competitors have substantially greater financial, technical, marketing and sales resources than the Company. Some of these competitors also offer business application products not offered by the Company, primarily in the areas of human resources and manufacturing. However, Walker remains one of the few companies committed to providing and enhancing applications for the mainframe environment. Many of the competitors listed above compete with Walker by offering UNIX-based applications. The Company encounters competition from a broader range of firms in the market for professional services. These competitors include the consulting divisions of the major accounting firms which possess greater resources than the Company and small independent firms which compete primarily on the basis of price of services provided. The principal competitive factors in the market for business and financial applications software and services include product functionality, flexibility, portability, integration, reliability, performance, product availability, speed of implementation, quality of customer support and user documentation, vendor reputation, experience, financial stability, cost effectiveness and price. The Company believes that it competes favorably with respect to these factors. There can be no assurance, however, that the Company will be able to compete successfully in the future. RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid technological change. The pace of change has accelerated due to advances in mainframe and client/server technology and the growth in internet, intranet and extranet utilization. The Company expects to evaluate potential opportunities and may invest in those which are compatible with the Company's strategic direction. However, there can be no assurance that any such investments will be profitable. Furthermore, the Company's products are designed primarily for use with certain mainframe and client/server systems. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete. Accordingly, the Company's future success depends in part upon its ability to continue to enhance its current products and to develop and introduce new products that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new operating systems, hardware platforms, interfaces and third party applications software. There can be no assurances that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, changes in customer requirements or emerging industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of such products and enhancements or that any new products or enhancements that it may introduce will achieve market acceptance. PRODUCT DEVELOPMENT. The Company's continued success is dependent on its continued ability to introduce, develop and market new and enhanced versions of its software products, although there can be no assurance that such ability can be maintained. The Company expects product development expenses to grow in future periods. However, there can be no assurance that revenues will be sufficient to support the future product development which is required for the Company to be competitive. Although the Company may be able to release new products in addition to enhancements to existing products, there can be no assurance that the Company's new or upgraded products will be accepted, will not be delayed or canceled, or will not contain errors or "bugs" that could affect the performance of the product or cause damage to users' data. PROPRIETARY RIGHTS. The Company regards its products as proprietary. Through its license agreements with customers and its internal security systems, confidentiality procedures and employee agreements, the Company has 12 taken steps to maintain the trade secrecy of its products. However, there can be no assurances that misappropriation will not occur. In addition, the laws of some countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the confidentiality of any proprietary information will provide any meaningful competitive advantage. The Company has no patents relating to its products. The Company believes that, because of the rapid pace of technological change in the computer software industry, that trade secrets are less significant than factors such as the knowledge, ability and experience of the Company's employees, frequent product enhancements and the timeliness and quality of support services. There can be no assurance that the Company's current efforts to retain its products as proprietary will be adequate. Although the Company believes that its products do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products or that any such assertions may not require the Company to enter into royalty arrangements or result in costly litigation. YEAR 2000 COMPLIANCE. The Company believes that its commercial application software products generally offered for license by the Company to end-user customers are Year 2000 compliant. Furthermore, the Company has completed an assessment of its Year 2000 issues. The Company has determined that its Year 2000 issues would not have a material effect on the Company's business, results of operations or financial condition. However, failure of the Company's commercial application software products or internal business technology to operate properly in the Year 2000 may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems. PRODUCT LIABILITY. The Company's license agreements with its customers contain provisions designed to limit the Company's exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in such license agreements may not be enforced as a result of international, federal, state and local laws or ordinances or unfavorable judicial decisions. The license and support of the Company's software for use in mission critical applications creates the risk of product liability claims against the Company. Damage liability or injunctive relief resulting from such a claim could cause a materially adverse impact on the Company's business, operating results and financial condition. EMPLOYEES. The Company believes that its continued success will depend in large part upon its ability to attract, train and retain highly-skilled technical, sales and marketing and managerial personnel. The Company continues to hire a significant number of sales, marketing, services and technical personnel. Because of the high level of demand, competition for such personnel is intense and the Company from time to time experiences difficulty in locating candidates with appropriate qualifications or within desired geographic locations. Revenue growth is dependent on the Company's ability to attract, train, retain and productively manage such personnel. EXPANSION OF FACILITIES. Recently, commercial building vacancy rates have significantly dropped in San Francisco, California, where the Company has its headquarters. The Company's San Francisco office lease expires in 2007. However, the Company may experience difficulty obtaining additional space if the Company's space requirements in San Francisco significantly exceed the quantity of space the Company currently has under lease. In addition, the increased demand for office space has caused commercial rental rates to increase substantially. Failure to either obtain space, or obtain it on reasonably attractive commercial terms, may inhibit the Company's ability to grow or otherwise adversely affect the Company's operations and financial results. ACQUISITION RELATED RISKS. The Company has acquired and may continue to acquire complimentary businesses, products or technology. The process of integrating an acquired company's business into the Company's operations may result in unforeseen operating difficulties and expenditures and may require significant management attention that would otherwise be available for the ongoing development of the Company's business. There can be no assurance that any anticipated benefits of an acquisition will be realized. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization related to goodwill and other intangible assets, which could materially affect the Company's operating results and financial condition. Acquisitions involve numerous risks, including difficulties in the assimilation of operations, technologies and products of the acquired company, risks associated with entering markets in which the Company has no or limited direct prior experience and the potential loss of key employees of the acquired company. 13 VOLATILITY OF STOCK PRICE. High technology companies, including the Company, frequently experience volatility in their common stock prices. Factors such as quarterly fluctuations in results of operations, announcements of technological innovations by the Company or its competitors or the introduction of new products by the Company or its competitors and macroeconomic conditions in the computer hardware and software industries generally may have a significant adverse impact on the market price of the Company's stock. If revenues or earnings in any quarter fail to meet the expectations of the investment community, there could be an immediate impact on the Company's stock price. In addition, the Company has issued shares and stock options which if sold directly or exercised and sold on the open market in large concentrations, could cause the Company's stock price to decline in the short term. Recent tax legislation which lowered tax rates on capital gains could potentially result in increased sales of all U.S. equity securities including the Company's common stock. Such sales, if material, could negatively impact the stock price. Furthermore, the stock market has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for many high technology companies, in some cases unrelated to the operating performance of those companies. These broad market fluctuations may materially adversely affect the market price of the stock of the Company. 14 PART II. OTHER INFORMATION - --------------------------- Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders of Walker Interactive Systems, Inc. was held on May 21, 1998. (b) Richard C. Alberding was elected to the Board of Directors to hold office until the 2001 Annual Meeting of Stockholders. The Directors whose term of office as Director continued after the meeting where: Tania Amochaev, William A. Hasler, John M. Lillie, Leonard Y. Liu, and David C. Wetmore. (c) The matters voted upon at the meeting and the voting of the stockholders with respect thereto are as follows: (i) The election of Richard C. Alberding as a Director to hold office until the 2001 Annual Meeting of Stockholders: For: 11,238,276 Withheld: 553,628 (ii) To approve the Company's 1992 Employee Stock Purchase Plan, as amended, to increase the aggregate number of shares of Common Stock authorized for issuance under such plan from 650,000 shares to 950,000, an increase of 300,000 shares: For: 7,864,729 Against: 44,480 Abstain: 50,461 Broker Non-Vote: 3,832,234 (iii) To approve the Company's 1994 Equity Incentive Plan, as amended to increase the aggregate number of shares of Common Stock authorized for issuance under such plan from 1,200,000 shares to 2,400,000, an increase of 1,200,000 shares. For: 6,157,123 Against: 1,779,916 Abstain: 47,904 Broker Non-Votes: 3,806,961 (iii) Ratification of the selection of Deloitte & Touche LLP as independent public accountants of the Company for its fiscal year ending December 31, 1998. For: 11,779,084 Against: 1,690 Abstain: 11,130 Broker Non-Votes: 0 Item 5. OTHER INFORMATION Pursuant to the Company's Bylaws, stockholders who wish to bring matters or propose nominees for director at the Company's 1999 annual meeting of stockholders must provide specified information to the Company not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the 1998 annual meeting (or May 21, 1999), unless such matters are included in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.14 1995 Executive Employment Agreement between the Registrant and Leonard Y. Liu, as amended to date. 10.16 1998 Executive Employment Agreement between the Registrant and Thomas W. Hubbs. 27.1 Financial Data Schedule (electronic filing only) 15 (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended June 30, 1998. 16 WALKER INTERACTIVE SYSTEMS, INC. FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WALKER INTERACTIVE SYSTEMS, INC. -------------------------------- (REGISTRANT) Date: August 7, 1998 By: /s/ BARBARA M. HUBBARD -------------- ---------------------- Barbara M. Hubbard Vice President and Corporate Controller (Chief Accounting Officer) 17 WALKER INTERACTIVE SYSTEMS, INC. FORM 10-Q INDEX TO EXHIBITS
Exhibit Number Description Page Reference - -------------------------------------------------------------------------------------------------------------------- 10.14 1995 Executive Employment Agreement between the 19 Registrant and Leonard Y. Liu, as amended to date. 10.16 1998 Executive Employment Agreement between the 22 Registrant and Thomas W. Hubbs. 27.1 Financial Data Schedule (electronic filing only) 25
18 EX-10.14 2 1995 EXECUTIVE EMPLOYMENT AGREEMENT FOR LIU EXHIBIT 10.14 AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 (this "Amendment") is entered into by and between WALKER INTERACTIVE SYSTEMS, INC. (the "Company") and LEONARD Y. LIU ("Executive"), effective March 4, 1998. WITNESSETH WHEREAS, the Company and Executive entered into an Executive Employment Agreement effective June 25, 1995 (the "Employment Agreement"); WHEREAS, the parties desire to modify certain provisions in the Employment Agreement in order to provide Executive greater benefits than those provided by the Employment Agreement in return for Executive's continued service to the Company; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto: 2. SUBSTITUTION OF PROVISIONS. The following provisions shall replace Sections 7.1(a) and 7.1(b) of the Employment Agreement: 7.1 COMPANY INITIATED TERMINATION. 10.16.1 If within the first six (6) months of Executive's employment with the Company, the Company terminates Executive's employment without cause or Executive terminates employment because the Company has reduced Executive's responsibilities, functions, titles, or overall compensation package, Executive shall receive, as severance: (i) continued payment of Executive's base salary for twelve (12) months from the Effective Date, (ii) continued health care benefits for twelve (12) months from the Effective Date following Executive's date of termination under the federal COBRA law; (iii) accelerated vesting of any and all shares pursuant to any and all stock options granted to Executive such that all shares which otherwise would have vested on or before the end of the twelfth month following the Effective Date had Executive's termination not occurred until the end of such period will be deemed vested as of the date of the Executive's termination; and (iv) six (6) months after the date of Executive's termination to exercise any and all vested shares subject to any and all stock options granted to Executive (provided that any such extension shall not extend the maximum term 19 during which any such option may be exercised beyond ten (10) years). If after the first six (6) months of Executive's employment with the Company, the Company terminates Executive's employment without cause or Executive terminates employment because the Company has reduced Executive's responsibilities, functions, titles, or overall compensation package, the Executive shall receive, as severance: (i) continued payment of Executive's base salary for twelve (12) months; (ii) continued health care benefits for twelve (12) months following Executive's termination of employment under the federal COBRA law; (iii) accelerated vesting of any and all shares pursuant to any and all stock options granted to Executive such that all shares which otherwise would have vested on or before the end of the sixth month following the date of Executive's termination, with respect to all stock options granted to Executive prior to March 4, 1998, and the twelfth month following the date of Executive's termination, with respect to all stock options granted to Executive on or subsequent to March 4, 1998, will be deemed vested as of the date of the Executive's termination; and (iv) with respect to all stock options granted to Executive prior to March 4, 1998, six (6) months, and with respect to all stock options granted to Executive on or subsequent to March 4, 1998, twelve (12) months, after the date of Executive's termination to exercise any and all vested shares subject to any and all stock options granted to Executive (provided that any such extension shall not extend the maximum term during which any such option may be exercised beyond ten (10) years). For purposes of this Section 7.1 (a), the second option as described in Section 2.d. shall be considered to have vested at the rate of 2.0833% per month over 48 months beginning from the Effective Date. 10.16.2 Notwithstanding Section 7.1(a) above, if the Company (i) merges or combines with any other company or entity in a manner which produces a change of control; (ii) sells all or substantially all its assets to any other company or entity; (iii) has forty percent (40%) or more of its stock acquired by a person and/or affiliates of such person, the Executive shall receive: (i) continued payment of base salary for twenty-four (24) months following Executive's date of termination for any reason; (ii) continued health care benefits for twenty-four (24) months following Executive's termination of employment under the federal COBRA law; (iii) accelerated vesting of any and all shares, pursuant to any and all stock options granted to Executive; and (iv) with respect to all stock options granted to Executive prior to March 4, 1998, twelve (12) months, and with respect to all stock options granted to Executive on or subsequent to March 4, 1998, twenty-four (24) months, after the date of Executive's termination of employment for any reason to exercise any and all vested shares subject to any and all stock options granted to Executive (provided that any such extension shall not extend the maximum term during which any such option may be exercised beyond ten (10) years). For the purposes of this agreement, "change of control" 20 means a merger or consolidation in which the Company is not the surviving corporation, or in which the shareholders of the Company immediately prior to the merger or consolidation do not hold a majority of the shares of the resulting corporation. 3. TAX CONSEQUENCES. Executive acknowledges that he has been advised by the Company to consult with a tax advisor or attorney with respect to the tax consequences, if any, of these amendments to his stock option grants. 4. AFFIRMATION. Subject to the foregoing modifications to Section 7.1(a) and 7.1(b), the Company and Executive each hereby affirm all of the terms and conditions of the Employment Agreement, and acknowledge that the Employment Agreement is a binding agreement between the Executive and the Company. 5. ENTIRE AGREEMENT. This Amendment, together with the Employment Agreement, contains the entire agreement between the parties and constitutes the complete, final and exclusive embodiment of their agreement with respect to the subject matter. This Amendment is executed without reliance upon any promise, warranty or representation, written or oral, by any party or any representative of any party other than those expressly contained herein and it supersedes any other such promises, warranties or representations. IN WITNESS WHEREOF, the parties have duly authorized and caused this Amendment to be executed as follows: LEONARD Y. LIU WALKER INTERACTIVE SYSTEMS, INC. /s/ Leonard Y. Liu By: /s/ William A. Hasler - -------------------------- ------------------------------ Date: May 15, 1998 Title: Chair, Comp. Committee, BOD ------------------- --------------------------- Date: May 15, 1998 --------------------------- 21 EX-10.16 3 1998 EXECUTIVE EMPLOYMENT AGREEMENT FOR HUBBS EXHIBIT 10.16 March 19, 1998 Mr. Thomas W. Hubbs 1205 San Mateo Drive Menlo Park, CA 95025 Dear Thomas: It is my pleasure to offer you the position of Sr. Vice President, Finance and Chief Financial Officer for Walker, Inc., reporting directly to me. Walker's dynamic environment offers you both challenges and excellent professional development opportunities. All those who have met you are very impressed with your potential and believe you can make a significant contribution to our future success. The specific terms of our offer to you are: BASE SALARY: Your initial base salary will be $18,750.00 per month, the - ----------- equivalent of $225,000.00 per year. START DATE: We would like you to begin work not later than April 20, 1998, - ----------- or on a mutually acceptable start date. BONUS: You will be eligible to earn a bonus of $100,000.00 per year at - ------ achievement of 100% of objectives under terms of the Walker Executive Incentive Bonus Plan. Bonus payments are tied 100% to the Company's achievement of quarterly revenue and profit targets. For 1998, this incentive bonus will be pro-rated from your start date at Walker through December 31, 1998 STOCK OPTION: Subject to the approval of the Compensation Committee of the - ------------ Board of Directors, you will be granted an option to acquire 120,000 shares of the Company's common stock. The request will be presented to the Committee for action at its first regular meeting after you have become an employee of the Company. The exercise price of the option will be the closing market price on the date you join Walker, and the option will vest ratably over 4 years. TERMINATION: You and the Company each acknowledge that either party has the - ------------ right to terminate your employment with the Company at any time for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except in writing signed by a duly authorized officer of the Company. (A) In the event the Company terminates your employment without cause, you shall be entitled to receive the benefits described below, provided you sign a twelve month consulting agreement with the Company to provide appropriate personal services to the Company during the period following termination. 22 Thomas W. Hubbs Page 2 March 19, 1998 Providing you sign the twelve month consulting agreement, you shall receive, as severance: (i) twelve (12) months continued payment of your base salary from the date of your termination, six months of which shall be paid as a lump sum and six months of which will be paid over the twelve months of the consulting agreement; (ii) continued health care benefits for twelve (12) months following your date of termination under the federal COBRA law; (iii) accelerated vesting of any and all shares pursuant to any and all stock options granted to you such that all shares which otherwise would have vested had you been employed for six (6) months after the date of the your termination will be deemed vested at the conclusion of the twelve-month consulting agreement; and (iv) extension of the period during which the you may exercise any and all stock options deemed vested as of the conclusion of the twelve-month consulting agreement or vested as of the date of termination such that the you shall have until the end of three (3) months after the conclusion of the twelve-month consulting agreement to exercise such options (B) Notwithstanding the above, if the Company is acquired by or otherwise merges or combines with any other company or entity, and your employment is terminated without cause or your responsibilities and duties are substantially reduced during the period from one (1) month prior to the consummation of such merger or business combination through the end of the twelfth months following the date of such merger or business combination, the you shall receive, as severance: (i) continued payment of base salary for twelve (12) months; (ii) continued health care benefits for twelve (12) months following your date of termination under the federal COBRA law; and (iii) accelerated vesting of any and all shares pursuant to any and all stock options granted to you such that all shares which otherwise would have vested after your termination will be deemed vested as of the date of the termination. OTHER: You will be eligible to enroll in the Company's 401(k) - ------ Retirement Plan on the first day of the month that follows the month in which your employment commences. You will be eligible for coverage under the Company's Group Health Plans beginning on your first day of employment. You will accrue vacation from your start date of employment at the rate of 10.0 hours per month (3 weeks per year). Beginning with your third year of employment, the accrual will increase to four weeks per year. Your employment by the Company is contingent upon your compliance with our standard conditions of employment such as entering into a proprietary rights and confidentiality agreement, and providing the necessary proof of citizenship or other status that enables the Company to legally employ you. 23 Thomas W. Hubbs Page 3 March 19, 1998 I hope you will decide to join the Walker team, as our success is derived from the people who work here. You may accept this offer by signing below and returning one copy of this letter to me. We will expect a reply from you no later than March 25, 1998, after which we will consider this offer closed. Please retain the extra original of this letter for your personal records. Should you have any questions regarding this offer, please do not hesitate to contact me. Upon acceptance of this offer and determination of your start date, you will be scheduled for new hire orientation by Human Resources Sincerely, Leonard Liu Chief Executive Officer and Chairman of the Board I accept Walker's offer of employment: /s/ Thomas W. Hubbs March 20, 1998 - --------------------------- --------------------------- Thomas W. Hubbs Date Signed - --------------------------- Employment Start Date 24 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Walker Interactive Systems, Inc. quarterly report on Form 10-Q for the period ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 11,304 9,931 27,899 1,102 0 45,902 26,444 22,117 88,520 29,462 0 0 0 14 53,880 88,520 49,102 49,102 22,328 45,953 0 0 0 3,733 1,344 0 0 0 0 2,389 0.17 0.16 Basic earnings per share are reported under Edgar tag "EPS-Primary"
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